Lesson 1 of Fundamentals: Ethics, Law and Code of Ethics Flashcards

Question

Understanding the Client's Personal and Financial Circumstances

Answer 1

**Key Words:** - Qualitative and Quantitative Information - Analyze Information - Address Incomplete Information - Scope of Engagement **Test Tips:** - Both quantitative and qualitative information are equally important - **Quantitative:** Age, Assets, Liquidity, Estate Plans, Cash Flows - **Qualitative: Values:** Life Expectancy, Risk Tolerance - Restrict scope of engagement of necessary information is not provided or available **Data Gathering:** - May be obtained directly from the client, or other sources, interviews, questionnaires, client records, and documents. - The planner should be an active and engaged listener. - Four categories of information gathered by the planner include: - Lists of assets & liabilities - Dollar values - Ownership information - Contractual agreements

Answer 2

**Key Words:** - Identify Goals (Personal & Financial Circumstances --Develop reasonable assumptions (Life expectancy) & estimates (tax rates, investment returns) - impact of effects on other Goals - Prioritize Goals - Which goals are unrealstic **Test Tips:** - Goal selection and prioritization are ongoing throughout the planning process. - Scarcity of resources impact one another

Answer 3

**Key Words:** - Current Course of Action - Advantages & Disadvantages - Potential Course of Action - Potential alternatives course of action does not become a recommendation until the CFP professional selects it as a recommendation in step 4 of the action, the development part. **Test Tips:** - Objectively analyze the good and the bad of current and proposed actions. - Products and strategies are not favored or recommended by the CFP Board, only process. Keep personal bias in check on the exam.

Answer 4

**Key Words:** - Assumptions - Select one or more recommendations to **Maximize Potential to meet goals.** - Basis for making recommendations - Consider Timing and Priority to meet goals. - Independent or In concert - Is recommendation independent or must it be implemented with another recommendation. **Test Tips:** - Select answers that maximize the potential to meet goals (consider cost, liquidity, risk) - Transactions stand as independent recommendations; Financial Planning most often requires goals to work together.

Answer 5

- Mutually defined scope of engagement - Mutually defined client goals, needs, and priorities; - Quantitative data provided by the client - Personal and economic assumptions - Practioner's analysis and evaluation of the client's current situation; and - Alternative(s) elected by the practitioner A recommendation may to just be continuing the current course of action.

Answer 6

**Key Words:** - Information - Developing **Test Tips:** - Present recommendations and discuss with the client before acting on them - Process > Product - Present to the client the selected recommendation(s) and the information that was required to be considered on developing the situation. - Provide advantages and disadvantages of contnuing current plan and any alternative plans. - Recommendations may be presented orally, in writing, in person, over the phone, or another format if client needs. - Consider the complexitity of your recommendation when determining the presentation. - Keep in mind any visual or hearing impairment.

Answer 7

**Key Words:** - Responsibilities - Identify - Analyze - Advantages - Disadvantages **Test Tips:** - Different business models put different levels of responsibility on the client and the planner - Consider stand-alone goals (buying P&C coverage) and those that have to be implemented together (estate planning) - Process > Product - Must be completed unless specifically excluded. - Establish responsibilities of the client, CFP Professional, and any third parties. - Includes CPA, Attorney, Insurance agent, etc. - Set timeline and priority. - Identifying, Analyzing, and Selecting Actions, Products and Services - Recommending Actions, Products, and Services for Implementation - Select implementation actions, products, and services.

Answer 8

Select appropriate products and services that are consistent with the client's goals, needs, and priorities. Investigate products or services that reasonably address the client's needs. Products or services must be suitable to the client's financial situation and consistent with the client's goals, needs, and priorities. Use professional judgment incorporating both qualitative and quantitative information in selecting the products and services that are in the client's interest. The planner should use an implementation timeline for all parties.

Answer 9

**After recommendations are presented** - The client is solely responsible for accepting or rejecting the recommendations - Once a recommendation is accepted, the planner can move toward implementation.

Answer 10

**Key Words:** - Monitoring Responsibilities - Progress - Collaborate - Update **Test Tips:** - Must establish monitoring duties but not necessarily monitor (if specifically excluded from the scope) - The CFP board does not state how frequently monitoring or progress updates must take place (states approximate intervals) - A CFP professional must specifically state they are not monitoring. Otherwise, monitoring is assumed. **Monitoring the Plan:** - Must be completed unless specifically excluded. - How and when - Client's responsibility to update - Monitor the client's progress - Obtain current qualitative and quantitative information. - Update goals, recommendations, or implementation decisions - Determine if the terms of engagement are up to date.

Answer 11

**Two types of reviews** - **Regular reviews:** occur at predetermined intervals. - **Episodic reviews:** occur after major, life-changing events. Investment results should be communicated at least quarterly or monthly during periods of extreme volatility. Investment management may require more frequent plan reviews. Performance benchmarks should be used at least annually. (risk, return, allocation)

Answer 12

**Use reasonable care when supervising:** - A CFP Professional must exercise reasonable care when supervising a person acting under the CFP Professional's direction, including employees and other persons whim the CFP has responsibility, with a view toward preventing violation of applicable laws, rules, regulations, and these standards. - Ex: If a CFP Professional goes on vacation and turns all client info to an intern to make recommendations, the CFP broke the "supervising duty." **Comply with the lawful objectives of CFP Professional Firm:** - Will be subject to discipline by the CFP Board for violating policies and procedures of the CFP Board that do not conflict with these standards. - Ex. You were in the wrong, firm had good conduct. - Will not be subject to discipline by the CFP Board for violating policies and procedures of the CFP Professional's firm that conflict with these standards. - No discipline for violating the firm by the CFP board, firm prohibited alcohol at dinner, but you drank a glass with the client. CFP Board has no punishment. **Provide notice of Public Discipline:** - A CFP Professional must promptly advice the CFP's firm in writing, of any public discipline imposed by CFP Board. ## Footnote Exam Note: If a CFP Professional goes on vacation and turns all client info to an intern to make recommendations, the CFP Professional broke the "supervision duty".

Answer 13

Definitions Refrain from Adverse Conduct Reporting Provide Narrative Statement - Outcome of facts or reports of whatever incident Cooperation Compliance w/ Terms and conditions of Certification and License

Answer 14

Answer: D CFP Board Code of Ethics does not govern a CFP Certificant.

Answer 15

A felony offense or, for jurisdictions that do not differentiate between a felony and a misdemeanor, an offense punishable by a sentence of **at least one-year imprisonment or a fine of at least $1,000.**

Answer 16

A criminal offense that is not a felony for conduct involving: - fraud, - theft, - misrepresentations, - other dishonest conduct, - crimes of moral turpitude, - violence, or - a second (or more) alcohol and/or drug-related offense. - Example: Tax and Financial. **Not:** - First alcohol and drug misdemeanor. - Driving offense, tickets, and misdemeanor.

Answer 17

An investigation initiated by a federal, state, local, or foreign governmental agency, self-regulatory organization, or other regulatory authority. Does not include preliminary routine regulatory inquiries or requests for information, deficiency letters, "blue sheets" requests other trading questionnaires, or examinations.

Answer 18

An action initiated by a federal, state, local, or foreign governmental agency, self-regulatory organization, or other regulatory authority.

Answer 19

A lawsuit or arbitration | Arbitration: Settle a dispute

Answer 20

Includes an adverse final action and a consent decree in which the finding is neither admitted nor denied but does not include a deficiency letter, examination report, memorandum of understanding, or similar informal resolution of a matter.

Answer 21

A violation of a self-regulatory organization rule is designated as a minor rule violation under a plan approved by the U.S. Securities Exchange Commission. A rule violation may be designated as "minor" under a plan if the sanction imposed consists of a: - **fine of $2,500 or less** and - if the sanctioned person does not contest the fine.

Answer 22

A CFP® professional may not engage in conduct that reflects adversely on his or her integrity or fitness as a CFP® professional, upon the CFP® marks, or upon the profession. Such conduct includes but is not limited to, conduct that results in: - a) A Felony or Relevant Misdemeanor conviction or admission into a program that defers or with holds the entry of a judgment of conviction for a Felony or Relevant Misdemeanor; - b) A Finding in a Regulatory Action or a Civil Action that the CFP® professional engaged in fraud, theft, misrepresentation, or other dishonest conduct; - c) A personal bankruptcy or business bankruptcy filing or adjudication where the CFP® professional was a Control Person of the business, unless the CFP® professional can rebut the presumption that the bankruptcy demonstrates an inability to manage responsibly the CFP® professional’s or the business’s financial affairs; - d) A federal tax lien on property owned by the CFP® professional, unless the CFP® professional can rebut the presumption that the federal tax lien demonstrates an inability to manage responsibly the CFP® professional’s financial affairs or - e) A non-federal tax lien, judgment lien, or civil judgment that has not been satisfied within a reasonable amount of time unless the CFP® professional can rebut the presumption that the non- federal tax lien, judgment lien, or civil judgment demonstrates an inability to manage responsibly the CFP® professional’s financial affairs.

Answer 23

Reporting must take place 30 days after a **CFP professional is NAMED, CHARGED, CONVICTED, SETTLED, ADVERSELY MENTIONED IN AN ACTION, ARBITRATION, OR CIVIL EVENT.** A CFP professional should report the initial charge or investigation as well as its outcome. - This can include Felony, Relevant Misdemeanor, Regulatory Investigation, regulatory action, arbitration, civil judgment, license & certification & membership revoked or restricted, being terminated for employment because of dishonesty & unethical conduct or compliance failures, sales practice violations, filed or subject of personal/business bankruptcy, federal tax lien, failed to satisfy non fed tax lien or judgment lien or civil judgment within one year. 30 days include weekends and holidays, and a policy of over-disclosure is preferential to one of less disclosure. Testable exceptions to reporting include claims of arbitrations compensation for $5,000 or less and violations settled for $15,000 or less. Even rebuttable actions should be reported to the CFP board. Reporting does not necessarily lead to discipline.

Answer 24

The written notice must include a narrative statement that **accurately and completely describes the Material facts and the outcome or status** of the reportable manner.

Answer 25

A CFP Professional may not make false or misleading representations to the CFP board or obstruct CFP board in the performance of its duties. A CFP must satisfy this requirement set forth in the CFP Board's Procedural Rules, including by cooperating fully with the CFP Board's requests, investigations, disciplinary proceedings, and disciplinary decisions.

Answer 26

A CFP professional must comply with the Terms and Conditions of Certification and Trademark License. Always use capital letters. Never use periods. Always use the ® symbol. - The CFP® mark must not be used as a parenthetical abbreviation for the CERTIFIED FINANCIAL PLANNER™ mark. The CERTIFIED FINANCIAL PLANNER™ mark must not be used as a parenthetical expansion of the CFP® mark. - Improper Use: “John Doe is a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional,” and “Jane Doe is a CFP® (CERTIFIED FINANCIAL PLANNER™) professional.” Certificants are strictly prohibited from using the CFP® mark and the CERTIFIED FINANCIAL PLANNER™ mark in domain names/URLs and email addresses used by them.

Answer 27

A CFP Professional may not do indirectly or through another person or entity any act the Code and Standards prohibit the CFP Professional from doing directly.

Answer 28

- Exam - Mark - Certification - Certificant - Professional - Practitioner

Answer 29

Within 30 Days Consequence: 2nd notice is sent

Answer 30

Within 30 calendar days Consequence: Default

Answer 31

Within 30 calendar days Consequence: A second request is sent

Answer 32

Within 14 calendar days Consequence: Notice of failure to cooperate, which constitutes grounds for sanctions.

Answer 33

Within 14 calendar days Consequence: Missing these deadlines is not specifically stated in the procedural rules. **No Appeals interim suspension.**

Answer 34

May last 90 days to 5 years

Answer 35

Within 45 calendar days Consequence: Missing these deadlines is not specifically stated in the procedural rules.

Answer 36

Within 30 calendar days Consequence: Missing these deadlines is not specifically stated in the procedural rules.

Answer 37

Unpublished written reproach mailed by the commission (DEC) to a censured CFP professional.

Answer 38

Publishable written reproach of the CFP Professional, by the CFP Board.

Answer 39

Disciplinary and Ethics Commission - Complaints that do not meet the criteria for interim suspension these people have jurisdictions. - Board of Professional Review: Is responsible for interpreting and applying the code of ethics.

Answer 40

Felony conviction for theft, embezzlement, or other financially based crimes. Felony conviction for tax fraud or other financial/ tax-related crimes. Revocation of a financial professional (registered securities representative, broker/dealer, insurance, accountant, investment advisor, financial planner) license unless the revocation is administrative in nature. - Ex. Administrative Revocation: Individuals not renewing a license by not paying required fees. Felony conviction for any degree or murder or rape. Felony conviction for any other violent crime within the last five years. If the list falls under this, then there's no recourse.

Answer 41

Two or more personal or business bankruptcies. Revocation or suspension of a nonfinancial professional (real estate, attorney) license unless the revocation is administrative in nature. - Ex: Not renewing a license by not paying the fee. Suspension of a financial professional (registered securities representative, broker/dealer, insurance, accountant, investment advisor, financial planner) license unless the suspension is administered in nature. - Ex: Not renewing a license by not paying the fee. Felony conviction for nonviolent crimes (including perjury) within the last five years Felony conviction for violent crimes other than murder or rape that more more than five years ago. If transgression falls under this or the other adverse conduct list, one may file a petition for fitness determination. - Pathway to CFP Certification agreements must have been signed. **Review process:** - Submit a written petition and sign a form agreeing to a CFP Board jurisdiction - A fee will be charged to all candidates submitting a reconsideration request - If transgression falls under the "presumption" list, staff will request all relevant documentation from the individual. - If the petition is denied DEC may allow the individual to reapply after a period of time in some cases. - Can appeal to the Appeals Committee of the Board of Directors. ## Footnote Exam Tip: Bankrupcies will be disclosed on the CFP professional's public profile displayed on the CFP Board's website for 10 years and their names will be included once in a press release issued periodically by the board. In Limited circumstances, the first bankcupcy will not be published.

Answer 42

A respondent must prove a preponderance (of being greater in number, quantity, or importance) of the evidence. Hearing panel will recommend to the DEC whether to grant or deny. DEC must review (de novo) and accept, reject or modify the panels findings. DEC issues final order to grant deny or impose temporary bar or permanent bar. CFP Board publishes temporary bar and permanent bar - Newspaper - CFP Board website or any other form of public disclosure.

Answer 43

**Suspension of more than one year:** - Respondent,just file a written petition for reinstatement - No earlier than 6 months prior to the last day - No later then 5 years after the first day - No request = Respondent relinquishes CFP Certification **Hearing Panel and DEC Review** - If DEC does not authorize a renewed petition for reinstatement or denies said statement, DEC must issue revocation. - DEC Decisions are final unless felony convictions are overturned, at which time the individual may submit. A new petition.

Answer 44

As a CFP Professional, you owe a duty to your client. Identify your client and disclose everything. **Examples:** - Spouses are clients. If one spouse wants a divorce they either want money for an attorney or want you to be their CFP Professional. You must disclose this to the other spouse. Giving them money is not the right answer. - Brothers and sisters want access to their funds in a joint account established by your client, and their parents. Don't liquidate the account immediately. Counsel with the brothers and sisters about why they want to liquidate the account.

Answer 45

Always place the biggest financial risk first (as the highest priority) and the least risky, in terms of financial severity, as the lowest priority.

Answer 46

The CFP Board says CFP professional is responsible for everything related to a client's personal finances. The only time a CFP is not is when a special license is required to affect a transaction, such as a real estate license. **Responsible for:** - making sure RMD's occur. - making sure the client deposits a 401k rollover check in time - just about everything...except... **Not Responsible:** - Selling real estate - Writing a will or writing trust documents - Completing a tax return unless the planner is a CPA or enrolled agent.

Answer 47

**Report to:** - CFP board within 30 calendar days - Clients within 90 days (including locations of web pages with relevant information, - for example, **cfp.net, (FINRA) broker check, IAPD (SEC)** **Adjudication:** - (1.) Accept a public censure without incurring a hearing fee OR - (2.) Pay a hearing fee and follow a streamlined adjudication procedure. EXAM TIP: Bankrupcies will be disclosed on the CFP Professional public profile displayed on the CFP Board website for ten years, and their names will be included once in a press release issued periodically by the Board. Regardless of decisions, the CFP will have it disclosed on the board website and be disclosed to clients in addition to where clients would view this website. This would include personal or business bankruptcies. In limited circumstances, the 1st bankruptcy will not be punished if the DEC sees the CFP professional can demonstrate that the bankruptcy shows an inability to manage responsibility for the CFP Professional business's financial affairs.

Answer 48

Report to: - CFP board within 30 calendar days - Clients within 90 days (including locations of web pages with relevant information, for example, cfp.net, FINRA broker check) **Adjudication:** - Follow the normal disciplinary procedure for adjudicating complaints. EXAM TIP: Bankrupcies will be disclosed on the CFP Professional public profile displayed on the CFP Board website for 10 years, and their names will be included once in a press release issued periodically by the Board. In limited circumstances, the 1st bankruptcy will not be punished if the DEC sees the CFP professional can demonstrate that the bankruptcy shows an inability to manage responsibility for the CFP Professional business's financial affairs.

Answer 49

- Customer complaints - Arbitrations & other civil proceedings. - Felony convictions for nonviolent crimes that occurred more than five years ago. - Misdemeanor convictions - Employer investigations and terminations.

Answer 50

Communication that based on its content, context, and presentation would reasonably be viewed as a recommendation that the client take or refrain from taking a particular course of action. - Development or implementation of a financial plan - Value of or the advisability of investing in, purchasing, holding, gifting, or selling Financial assets - Selection and retention of other persons to provide financial or Professional services to the client (CPA, Attorneys) - Investment policies or strategies, portfolio composition, the management of financial assets, or other financial matters - The exercise of discretionary authority over the financial assets of a client. The more individually tailored the communication is to the client, the more likely it will be viewed as financial advice. General financial education material, general financial communications, and finishing of making available marketing materials do not constitute financial advice. - Example: Seminar Mutual Fund. The relative asks for information about the 529 plan, not financial advice. Specific to the portfolio would be financial advice **Investment advice is not going through personal and financial circumstances.**

Answer 51

Your Name, CFP ^ (R) **Followed by One of the Nouns:** - Exam - Practioner - Certificant - Professional - Mark - Certification CERTIFIED FINANCIAL PLANNER ^ (TM) - (ALL CAPS) Do NOT use as part of email or website

Answer 52

**Similarities:** - Privacy document MUST be in writing. - Conflicts of Interest can be oral or in writing **Differences: Below delivery methods** FP: Provided in one or more writtten documents FA: Privide orally or in writing **Topics of Information Needed to Provide to Clcient:** - Privacy policy - services and products - How client pays - How you, your firm, and related parties, are compensated - Public discipline and bankrupcy - Referral compensation arrangements - Terms of engagement (**Implementing, Monitoring and - Updating** is Required unless explicity stated)

Answer 53

**Financial Advice:** - Duties Owed To Clients - Fiduciary Duty - Disclose and Manage Conflcits of Interest - Provide Information to a Client - Duties When Recommending, Engaging, and Working with Additional Persons **Financial Planning:** - The Duties that Apply when Providing Financial Advice (See Above) - The Practice Standards for the Financial Planning Process - Information to a Client in Writing

Answer 54

Factors the CFP Board will weigh in determining whether or a CFP Professional has agreed to provide or provided that arequires financial planning.

Answer 55

- The number of relevant elements of the Client’s personal and financial circumstances that the Financial Advice may affect - Most Changes Do not Happen in a Silo - The portion and amount of the Client’s Financial Assets that the Financial Advice may affect; - The length of time the Client’s personal and financial circumstances may be affected by the Financial Advice - The effect on the Client’s overall exposure to risk if the Client implements the Financial Advice; and - The barriers to modifying the actions taken to implement the Financial Advice. ## Footnote https://www.cfp.net/ethics/compliance-resources/2019/11/when-financial-advice-does-not-require-financial-planning

Answer 56

A CFP professional must comply with the practice standards, set forth the Financial Planning Process.

Answer 57

**If a CFP Professional must comply with the Practice standards, but the client does not engage the CFP professional to provide the Financial Planning, the CFP Professional must either:** a) Not enter into the agreement b) Limit the Scope of Engagement to services that do not require application of the Practice Standards, and describe to the Client the servives the Client request that the CFP professional will not be performing; c) Provide the requested services after informing the client how Financial Planning would benefit the client and how the decision not to engage the CFP professional to provide Financial Planning may limit the CFP Professional's Financial Advice, in which case the CFP professional is not required to comply with the practice stabndards; or d) Terminate the engagement

Answer 58

When communicating with the client, a **combination of words, numbers, and graphics should be employed.** - **Pacing:** Matching the speed of listening with the speed of the person talking - **Rephrasing:** Restating or repeating back what has been stated. - **Reflecting:** a paraphrasing technique where the planner restates the client's words in the planner's words.

Answer 59

**Reflective Listening:** - Listen to understand - Repeat perceived message - The client should confirmation **Motivational Interviewing:** - Conveys empathy and acceptance - Key Principals: - Partnerships, Evocation (remembering a feeling), Acceptance, Compassion

Answer 60

**Open Questions:** - Encourages a lengthy response **Closed Question:** - Seeks a short and pointed response

Answer 61

**Visual:** - Make use of pictures, charts, and graphs where possible and appropriate **Auditory:** - Verbal explanation of each alternative and repeat key information **Kinesthetic:** - Uses a combination of learning styles toward interactive presentations

Answer 62

Answer: D Could also make a case for A too. Older, so probably need Health Insurance. Probably won't drive unless it's Canada. Won't need to update wills unless there is something major. SS canbe accessed electronically from multiple countries except like North Korea, and countries like that.

Lesson 1 of Fundamentals: Ethics, Law and Code of Ethics Flashcards

(88 cards)